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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
Commission File Number 0-27307
M&F BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-1980549
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2634 Chapel Hill Blvd., P.O. Box 1932, Durham, North Carolina 27707
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(Address of principal executive offices)
(919) 683-1521
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date:
Common Stock no par value 853,725
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Outstanding at July 20, 2001
Transitional Small Business Disclosure Format (Check one):
Yes No X
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M&F BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION (unaudited)
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of June 30, 2001 and
December 31, 2000 3
Consolidated Condensed Statements of Income and Comprehensive
Income for the six months ended June 30, 2001 and June 30, 2000 4
Consolidated Condensed Statements of Income and Comprehensive
Income for the three months ended June 30, 2001 and
June 30, 2000 5
Consolidated Condensed Statements of Shareholders' Equity for the
six months ended June 30, 2001 and June 30, 2000 6
Consolidated Condensed Statements of Cash flows for the six months
ended June 30, 2001 and June 30, 2000 7
Notes to Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 15
2
PART I: FINANCIAL INFORMATION
ITEM 1 Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, 2001 December 31, 2000
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(unaudited)
ASSETS
Cash and due from financial institutions $ 8,635 $ 2,982
Interest-earning deposits in financial institutions 15,808 7,617
Federal funds sold 5,000
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Cash and cash equivalents 24,443 15,599
Securities available for sale 28,508 29,632
Securities held to maturity 1,412 1,412
Loans:
Commercial, financial and agricultural loans 65,935 64,639
Real estate-construction loans 6,577 8,485
Real Estate-mortgage loans 35,809 34,112
Installment loans to individuals 7,476 7,690
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Total Loans 115,797 114,926
Unearned income 363 373
Allowance for loan losses 1,972 1,748
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Net Loans 113,462 112,805
Bank premises and equipment, net 5,251 5,391
Other assets 1,812 2,122
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TOTAL ASSETS $174,888 $166,961
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits 32,259 29,984
Interest-bearing deposits 111,002 105,162
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Total Deposits 143,261 135,146
Other borrowings 11,885 11,895
Other liabilities 1,748 2,213
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Total Liabilities 156,894 149,254
Shareholders' Equity:
Common stock 5,999 5,999
Retained earnings 11,237 10,981
Accumulated other comprehensive income 758 727
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Shareholders' Equity 17,994 17,707
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $174,888 $166,961
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3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except per share data)
Six months ended: June 30, 2001 June 30, 2000
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Interest Income:
Interest on loans $ 4,890 $ 4,976
Securities:
Taxable 676 727
Tax exempt 144 244
Federal funds sold 6 28
Other interest 260 66
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Total Interest Income $ 5,976 $ 6,041
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Interest Expense:
Interest on deposits 1,983 1,699
Interest on other borrowings 315 257
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Total Interest Expense $ 2,298 $ 1,956
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Net Interest Income 3,678 4,085
Provision for loan losses 272 210
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Net Interest Income After Provision for Loan Losses 3,406 3,875
Non-interest Income 996 733
Salaries & employee benefits 2,228 2,221
Other non-interest expense 1,656 1,641
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Income before Taxes 518 746
Income tax expense 127 174
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Net Income $ 391 $ 572
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Other Comprehensive (loss) income, net of tax 32 (84)
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Comprehensive Income $ 423 $ 488
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Net Income per share:
Basic $ 0.46 $ 0.67
Diluted $ 0.46 $ 0.67
Weighted average common shares outstanding:
Basic 854 854
Diluted 854 854
Dividends per share common: .16 .16
4
CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
(in thousands, except per share data)
Three months ended: June 30, 2001 June 30, 2000
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Interest Income:
Interest on loans $ 2,404 $ 2,524
Securities:
Taxable 344 355
Tax exempt 36 118
Federal funds sold 0 11
Other interest 119 29
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Total Interest Income $ 2,903 $ 3,037
Interest Expense:
Interest on deposits 1,005 857
Interest on other borrowings 157 141
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Total Interest Expense $ 1,162 $ 998
Net Interest Income 1,741 2,039
Provision for loan losses 138 133
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Net Interest Income After Provision for Loan Losses 1,603 1,906
Non-interest Income 573 378
Salaries & employee benefits 1,124 1,166
Other non-interest expense 822 841
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Income before Taxes 230 277
Income tax expense 68 27
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Net Income $ 162 $ 250
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Other comprehensive (loss) income, net of tax 18 (43)
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Comprehensive Income $ 180 $ 207
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Net Income per share:
Basic $ 0.19 $ 0.29
Diluted $ 0.19 $ 0.29
Weighted average common shares outstanding:
Basic 854 854
Diluted 854 854
Dividends per share common: .08 .08
5
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
June 30, 2001 June 30, 2000
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Beginning Balance, January 1 $17,707 $16,299
Net Income 391 572
Other Comprehensive (Loss) Income 32 (84)
Dividends (136) (136)
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Ending Balance, June 30 $17,994 $16,651
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6
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except per share data)
Six months ended: June 30, 2001 June 30, 2000
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Cash flows from operating activities:
Net Income $ 391 $ 572
Adjustments to reconcile net income to net cash from operating
activities:
Provision for possible loan losses 271 210
Provision for depreciation 212 203
Deferred income taxes provision (benefit) (229) 174
Gain on disposal of assets (178) 0
Deferred loan fees 10 41
Income taxes receivable 70 0
Interest Receivable 153 76
Prepaid expenses and other assets 56 84
Accrued expenses and other liabilities 33 81
Other (624) 30
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Net cash from operating activities 165 1,471
Cash flows (used in) provided by Investing Activities:
Proceeds from sales and maturities of securities (AFS) 5,500 1,000
Purchase of securities (AFS) (5,612) (2,000)
Net increase (decrease) in loans 874 (5,760)
Purchase of premises and equipment (62) (392)
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Net cash (used in) provided by investing activities 700 (7,152)
Net cash provided by (used in) Financing Activities:
Net increase (decrease) in demand and savings deposits 4,069 (1,114)
Net decrease in certificates of deposit 4,046 1,374
Cash dividends (136) (136)
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Net cash provided by financing activities 7,979 124
Net Increase (decrease) in Cash and Cash Equivalents 8,844 (5,557)
Cash and Cash Equivalents at the Beginning of the Period 15,599 14,636
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Cash and Cash Equivalents at the End of the Period $ 24,443 $ 9,079
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7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The consolidated financial statements include the accounts and transactions of
M&F Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Mechanics &
Farmers Bank ("M&F Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The accompanying unaudited
Consolidated Condensed Financial Statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and instructions from Regulation S-B.
The condensed consolidated financial statements included herein should be read
in conjunction with the consolidated financial statements and the related notes
thereto included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
In the opinion of management, all adjustments consisting of normal recurring
adjustments necessary for a fair presentation have been included.
2. Investment Securities
The Company accounts for investment securities using Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115). Under SFAS 115, the accounting for
investment securities held as an asset is dependent upon their classification as
held to maturity, available for sale, or trading assets.
3. Loans
Loans are carried at their principal amount outstanding, net of the allowance
for possible loan losses and deferred fees. Interest on commercial, mortgage and
installment loans is accrued and credited to operating income based upon the
principal amount outstanding. The Company's policy is to discontinue the accrual
of interest when, in management's judgment, circumstances indicate that
collection is doubtful. The Company applies Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114)
and Statement of Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures (SFAS 118).
4. Net Income Per Share
Net Income per share are calculated on the basis of the weighted-average number
of common shares outstanding. There were no dilutive potential common shares
outstanding for the periods ended June 30, 2001 and June 30, 2000.
5. Regulatory Capital Requirements
M&F Bank is subject to various regulatory capital requirements administered by
regulatory banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. As of June 30, 2001 and June 30, 2000 M&F Bank
had the following capital level.
Capital
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Risk Based Tier 1 Tier 2 Required Capital
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June 30, 2001 16.11% 14.35% 11.86% 6.00%
December 31, 2000 15.63% 13.86% 11.82% 6.00%
On June 27, 2001, M&F Bank transferred $500,000 from its capital to the Company
to allow the Company explore business opportunities.
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6. Comprehensive Income
The Company applies the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130") which requires the Company to (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position.
7. New Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement of Financial
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133") as amended by FAS No. 137, Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities. These Statements establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. They require that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company adopted SFAS 133 on
January 1, 2001. The adoption of this standard did not have a material impact on
the Company's financial statements.
8. Common Stock Cash Dividends
On March 27, 2001, the Board of Directors of the Company declared a quarterly
cash dividend of $0.08 per share to all shareholders of record on March 20, 2001
payable April 13, 2001. The dividend reduced shareholders equity by $68,298. On
June 26, 2001, the Board of Directors of the Company declared a quarterly cash
dividend of $0.08 per share to all shareholders of record on June 19, 2001. The
dividend reduced equity by $68,298.
9. Presentation
Certain amounts in 2000 have been reclassified to conform to the 2001
presentation.
10. Subsequent Event
On July 5, 2001, the Company liquidated a defaulted loan in a foreclosure sale
for $1,965,000 resulting in a loss of $489,823. The loss has been previously
reserved and included in the loan loss reserves.
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The following discussion and analysis of earnings and related financial data
should be read in conjunction with the Company's financial statements and notes
thereto included in the Annual Report on Form 10-KSB for the year ended December
31, 2000. It is intended to assist you in understanding the financial condition
and the results of operations for the three months and six months ended June 30,
2001 and 2000.
9
Forward-Looking Statements
When used in this report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or other
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the market area,
and competition that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. The Company wishes to
advise readers that the factors listed above could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from any opinions or statements expressed with
respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions, which may be made to any forward-
looking statements to reflect events or occurrences after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
Financial Condition
Total assets increased 4.75 percent to $174,888,000 at June 30, 2001 from
$166,961,000 at December 31, 2000. The investment portfolio balance (including
FHLB stock) as of June 30, 2001 was $29,920,000 compared to $31,044,000 at
December 31, 2000. Maturities and deposits were used to fund loan demand and
satisfy liquidity needs. The investment portfolio can be liquidated to meet loan
demand if necessary. Approximately 95 percent of the portfolio was classified as
available-for-sale at June 30, 2001 and December 31, 2000. All securities
purchased during 2001 and 2000 were classified in the available-for-sale
category. The average yield on the securities portfolio was 5.48 for the six
months ended June 30, 2001 percent compared to 6.26 percent for the same period
for the prior year. Interest-earning deposits held at financial institutions
increased 107.54 percent to $15,808,000 compared to $7,617,000 at December 31,
2000.
Net Loans increased less than one percent from December 31, 2000. The average
yield on the loan portfolio was 8.45 percent for the six months ended June 30,
2001 compared to 8.66 percent at December 31, 2000. Management continues its
effort to add more adjustable rate loans to the portfolio in an effort to reduce
the interest rate sensitivity of our loans. This effort is normally achieved in
the area of commercial loans, which are primarily secured by real estate.
Deposits increased 6.00 percent to $143,261,000 at June 30, 2001 from
$135,146,000 at December 31, 2000. The percentage of interest-bearing accounts
to total accounts decreased to 77.48 percent compared to 82.99 percent at June
30, 2001 and December 31, 2000, respectively. The average interest rate on
deposits increased to 3.57 percent from 3.23 from December 31, 2000 to June 30,
2001. Management believes that large deposit growth will be more difficult as
customers continue to look for alternative investment opportunities with higher
yields. As a result, the Company will continue to evaluate other sources of
liquidity to meet loan demand if necessary.
Total shareholders' equity increased 1.62 percent to $17,994,000 on June 30,
2001 from $17,707,000 at December 31, 2000. The change was due to year-to-date
net income partially offset by dividends declared.
10
Results of Operations - Comparison for the six months and three months ended
June 30, 2001 and 2000
Net income decreased 31.65 percent to $391,000 for the six months ended June 30,
2001 compared with $572,000 for the same period in 2000. The Company has
experienced a 9.96 percent decrease in the net interest margin as a result of
the declining interest rates. Deposit growth has greatly exceeded loan growth
for the year which has also impacted the net interest margin. The deposit growth
has been invested in liquid assets to meet anticipated loan demand which provide
a lower rate of return than loans. Noninterest income for the period was
$996,000 compared to the $733,000. The increase resulted from increased rental
income for the corporate facility (currently 100% occupancy of tenant space
compared to approximately 60% for the prior year).
Net income for the three months ended June 30, 2001 decreased 35.2 percent to
$162,000 compared with $250,000 for the same period in 2000. The Company's
earnings for the three months ended June 30, 2001 continued to be adversely
impacted by the reduction in interest rates and loan growth. The net interest
margin decreased by 14.61 percent compared the same period for the prior year.
Management plans to increase marketing efforts with expanded advertising and
increased product promotions. Noninterest income for the period was $573,000
compared to $378,000 for the same period in the prior year. The increase was
attributed to increased rental income from tenant space.
Non-performing assets and allowance for loan losses The allowance for loan
losses is calculated based upon an evaluation of pertinent factors underlying
the types and qualities of the Company's loans. Management considers such
factors as the repayment status of a loan, the estimated net realizable value of
the underlying collateral, the borrower's ability to repay the loan, current and
anticipated economic conditions which might affect the borrower's ability to
repay the loan and the Company's past statistical history concerning
charge-offs. The June 30, 2001 allowance for loan losses was 1,972,000 or 1.70
percent of total loans outstanding compared with $1,748,000 or 1.52 percent of
total loans outstanding at December 31, 2000. Management has considered
non-performing assets and total classified assets in establishing the allowance
for loan losses. At October 1, 2000 the Company had a loan of $2,485,000 in
default. In the quarter preceding the default, the loan had been restructured.
At June 30, 2001 the loan remained in default. On July 5, 2001, the Company
liquidated a defaulted loan in a foreclosure sale for $1,965,000 resulting in a
loss of $489,823. The loss has been previously reserved and included in the loan
loss reserves.
The ratio of non-performing assets to total assets is one indicator of the
exposure to credit risk. Non-performing assets of the Company consist of non-
accruing loans, accruing loans delinquent 90 days or more, restructured loans,
and foreclosed assets, which have been acquired as a result of foreclosure or
deed-in-lieu of foreclosure. The following table provides certain information
regarding non-performing assets.
06/30/01 12/31/00
(Dollars in Thousands)
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Non-Accruing Loans $ 3,297 2,795
Accruing Loans Delinquent 90 days or more 458 475
Foreclosed Assets 112 163
Restructured Loans 1,236 1,329
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Total Non-Performing Assets $ 5,103 $ 4,762
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Percentage of total assets 2.92% 2.85%
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The level of non-performing assets impacts the Company's need to maintain
reserves adequate to cover loan losses in the existing portfolio. As non-
performing assets decline, it has a favorable impact on earning assets and net
interest income.
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PART II
Other Information
ITEM 1. Legal Proceedings: Not applicable
ITEM 2. Changes in Securities: Not applicable
ITEM 3. Defaults upon Senior Securities: Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders:
The Annual Meeting of Stockholders held on May 1, 2001 was held to vote on the
following:
1. Elect six (6) persons to serve on the Board of Directors of M&F Bancorp, Inc.
until the annual meeting of stockholders in 2002. The following six directors
were elected:
Director Votes in Favor Votes Withheld
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Lee Johnson, Jr. 608,418 0
B.S. Ruffin 608,418 0
J.M. Sansom 608,418 0
A.L. Spaulding 608,418 0
G.G. Fulbright 608,418 0
M.K. Sloan 608,332 72
2. To ratify the selection of Deloitte & Touche, LLP as the independent auditor
for the M&F Bancorp, Inc. for the fiscal year ending December 31, 2001.
608,404 votes in favor 0 votes against 0 abstentions
ITEM 5. Other Information: Not applicable
ITEM 6. Exhibits and Report on Form 8-K
(c) Exhibits
Exhibit (3)(i) Articles of Incorporation of M&F Bancorp, Inc.,
incorporated by reference to Exhibit (3) to the Form 10-QSB for the quarter
ended September 30, 1999 filed with the Securities and Exchange Commission on
November 12, 1999.
Exhibit (3)(ii) Bylaws of M&F Bancorp, Inc., incorporated by reference
to Exhibit (3) to the Form 10-QSB for the quarter ended September 30, 1999 filed
with the Securities and Exchange Commission on November 12, 1999.
Exhibit (4) Specimen Stock Certificate incorporated by reference to
Exhibit (4) to the Form 10-KSB40 for the fiscal year ended December 31, 2000
filed with the Securities and Exchange Commission on April 2, 2001.
Exhibit (10)(a) Employment Agreement between Mechanics and Farmers Bank
and Lee Johnson, Jr. incorporated by reference to Exhibit 10(a) to the Form 10-
QSB for the quarter ended September 30, 2000 filed with the Securities and
Exchange Commission on November 9, 2000.
Exhibit (10)(b) Retention Bonus Agreement between Mechanics and Farmers
Bank and Fohliette Becote incorporated by reference to Exhibit 10(b) to the Form
10_QSB for the quarter ended September 30, 1999 filed with the Securities and
Exchange Commission on November 12, 1999.
13
Exhibit (10)(c) Retention Bonus Agreement between Mechanics and Farmers
Bank and Walter D. Harrington incorporated by references to Exhibit 10(c) to the
Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities
and Exchange Commission on November 12, 1999.
Exhibit (10)(d) Retention Bonus Agreement between Mechanics and Farmers
Bank and Harold G. Sellars incorporated by reference to Exhibit 10(d) to the
Form 10-QSB for the quarter ended September 30, 1999 filed with the Securities
and Exchange Commission on November 12, 1999.
Exhibit (10)(e) Retention Bonus Agreement Between Mechanics and Farmers
Bank and Elaine Small incorporated by reference to Exhibit 10(e) to the Form 10-
QSB for the quarter ended September 30, 1999 filed with the Securities and
Exchange Commission on November 12, 1999.
(b) Reports on Form 8-K
On May 1, 2001 the Company filed a report on Form 8-K to announce that
Benjamin S. Ruffin had been elected as Chairman of the Board and Joseph M.
Sansom had been elected as Vice Chairman. It was further announced that Lee
Johnson, Jr., would serve as President/Chief Executive Officer, effective May 1,
2001. Mr. Johnson formerly served as President/Chief Operating Officer.
14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to signed on its behalf by the undersigned, thereunto duly
authorized.
M&F Bancorp, Inc.
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(Registrant)
Date: August 7, 2001
By: /s/Lee Johnson Jr.
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Lee Johnson, Jr.
President/Chief Executive Officer
Date: August 7, 2001
By: /s/Fohliette W. Becote
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Fohliette W. Becote
Secretary/Treasurer
15